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So… Just How Bad Is Your Student Loan Situation?

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The game of life is hard to play
I’m gonna lose it anyway
The losing card I’ll someday lay
so this is all I have to say….

Suicide is Painless
Johnny Mandel, 1970

For those who are new to this blog or perhaps have stumbled upon this site because you are one of the nearly 40 million people who have as USA Today described “monumental student debt”, and or perhaps you are one of the 7 Million who find themselves in default on their student loans, well there just may be some tiny light shining in the dark abyss you have found yourself in.

This blog was begun when I realized that my student debt was drowning me, and the tidal wave of interest had become a Tsunami that was about to take my life! To say I had reached total despair puts it mildly. Yes, I contemplated ending my life, because I had at one point become homeless, and couch surfing between folks who really wanted me to be someplace else, well … that certainly was disheartening.

You see I live on about $1,200.00 a month. I am 67 years old, and on Social Security and I have a small retirement annuity. I had gone back to college at 40, trying to earn a degree and be more employable; and I had the dream that I could raise my standard of living to provide for 3 children from one failed marriage and a new baby from another marriage.

Over the course of many horrific events in my adult life, nothing and I mean nothing, went according to the dreams of success and happiness I had envisioned. In retrospect, I made many mistakes. Perhaps one of the biggest mistakes was believing having a degree was the answer?

So where was I? Oh yes, letting you know there may be some help if you are in a Tsunami like I am!

As you may have read, I recently filed my 3rd Chapter 7 Bankruptcy. How embarrassing is that? I once again found myself with a few thousand dollars of debt I cannot afford to pay-off. Those few bills for medical bills and other unsecured debt, paled to compare to the debt I owe for my student loans, which are now over 27 years old.

I signed for about $55,000.00 in student loans and for that money I will say I got a good education earning both a Bachelor’s and a Master’s in Health Administration. I was an excellent student and graduated with a 3.79 for the Bachelor’s and a 3.6 for the Master’s. All while working and raising a family, with a wife who also was in grad school earning her Master’s in Health Education.

Both my wife and I were under the impression that the Clinton administration was going to create millions of new health care jobs. Well, that never happened.

Defaulting Adds to the Total Debt!

Long story short, I am here today after paying nearly $18,000.00 on my loans, and that original $55K debt is now claimed to be close to $130,000.00 and growing. That is what default will do to you!

When you default on a student loan, the lender is entitled to demand huge penalties be placed against the loan. And in my case, I was disabled and living on SSDI (Social Security Disability). On SSDI, my loans were classified as deferred. I was unable to work at anything substantial and unable to pay on the loans during this period. However once I turned retirement age, the Social Security Administration switched me from SSDI to “regular” Social Security status, and whammy I was then off of deferment and hit with the full force of my student loan complete with accrued interest, and penalties.

So why am I telling you all of this? Well, simply because there was no way out for me. And really suicide was not something I really wanted. Oh and by the way… the lyrics were written by 14-year old Mike Altman and the hit song “Suicide is Painless” scored by Johnny Mandel became the theme song for the blockbuster Movie and TV series hit M.A.S.H.

And just when I thought things could not get worse, both my Social Security and retirement annuities began to be “garnished” to pay the interest on my defaulted student loan. The Dept. of Education can and does take a big percent of your retirement by way of what is called a “Treasury Offset”. In my case it is close to $300.00 a month! (By the way, over 150,000 elderly folks on Social Security are being garnished for student loan debts).

The offsets have been going on since about 2010. The ridiculous part is that the offset each month does not even cover the interest on the nearly $130,000.00 that the Dept. of Ed. says that I owe.

Loan Forgiveness?
Not in your lifetime!

My ears perked up with all the talk of “loan forgiveness” those words being spread in the news and on the internet in a barrage of ads and enticements. All of a sudden everyone was being bombarded with promises of total loan forgiveness. Well the only thing they really were spreading was a lot of Bullcrap! These so-called forgiveness options are no more than schemes by loan sharks to get you to agree to RE-FINANCE your student debt! Don’t fall for the scam!

Then there is the Dept. of Ed’s TPD (Total and Permanent Disability) provision, equating to a loan forgiveness. But as I have shared before – beware of this trap! If you apply for a TPD and are granted a Total and Permanent Disability Discharge of your student loan, you will owe the TAX on the total amount “forgiven” as a “capital gain to the IRS. Gee … thanks Feds!

Having applied (2) times for the TPD and then learning I would be stuck paying taxes on nearly $130,000.00, I am sure glad they never approved my application, even though I was a recipient of Social Security Disability Payments from 2003 to 2010, and qualified under the rules of TPD!

“Study to Show Thyself Approved”!

After considering all of my options, (including ending my life), I discovered the Undue Hardship Clause. So I did what any good college student learned to do in school, I researched and studied and applied myself to understanding just what was required to satisfy this so-called Undue Hardship rule that is part of the U.S. Bankruptcy Code.

If you learned to do research like I did (and unless you partied every day and night) you have the skills required to discover if you qualify for a total tax-free discharge of your student loans. I will warn you, this process is hard work, and very time consuming and yes at times overwhelming!

It is going on nearly a year now since I began this battle. In order to meet the criteria of the law, you will have to first file a Chapter in the U.S. Bankruptcy Court of your district. If you are struggling financially, a bankruptcy may be your way to get a “fresh start”, and if there are bills piling up while you are trying to pay off that student loan that is growing faster than weeds in the flower bed, then perhaps you should consider filing. I recommend avoiding a Chapter 13, because most Chapter 13’s still require you to restructure your finances and the loans are included in the restructuring, and thus are not automatically discharged or forgiven in a Chapter 13 Bankruptcy.

With a Chapter 7 filed, you then need to follow up within the same court and file what is called an “Adversary Proceeding”. Like I say… the information is all out there! The question is are you looking hard enough for the light at the bottom of the abyss?

More later. Please feel free to comment or ask questions.

Yours truly, Bob

This article by Bob Preston first appeared on Undue Hardship-Poverty Required and was distributed by the Personal Finance Syndication Network.

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